Reuters: global regulators close to final deal on Basel III sticking point

Global banking regulators are close to a final deal on capital rules that aim to ensure banks can withstand financial shocks, with Europe and the United States set to compromise on a major sticking point, banking and regulatory sources said to Reuters.

Europe and the United States have disagreed over the extent to which banks can use their own risk models to calculate their capital requirements. Basel has been trying to set an “output floor” that would limit the extent to which a bank’s capital requirements based on the lender’s own risk model can diverge from how they would be calculated under a more conservative model set by regulators.

Europe has wanted a floor set at 70 percent, while the United States has called for 75 percent. A deal at 72.5 percent now looks on the cards, the sources said. They also said that this requirement would come with a lengthy phase-in, meaning it could be up to a decade or more before the changes are fully implemented. Basel’s oversight body of mainly central bankers chaired by European Central Bank President Mario Draghi now needs to approve any deal and could broker one this week, the sources said.

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